According to the May 18th USDA Dairy Outlook, "The milk feed price ratio is pegged between 2.5 and 3.0. This should signal the end
of expansion but is not low enough to trigger a major liquidation. Cow numbers
will likely expand through the second quarter of 2006, hold steady in the third
quarter, and then begin a decline that will continue through 2007. The delay is
predicated on the notion that most producers make their “keep or cull” decisions in
the late summer. Lower year-over-year heifer prices this spring may indicate a
weakening demand for replacements and could lead to more culling by summer’s
end. Expected higher feed prices in the upcoming crop year and continued declines
in milk prices throughout 2006 could provide an incentive for smaller operators to
exit. However, exit decisions will likely be delayed until later in the season when
Milk Income Loss Contract Program payments are assured."

According to Bob Cropp's May Dairy Outlook, "In summary, we can expect some strengthening in farm milk prices as we move towards
summer. The April Class III price was $10.93, $3.68 lower than the $14.61 price experienced a
year ago. The Class IV price was $10.36. It looks like the May Class III price will be little
unchanged from April at around $10.90. But, the Class III price could move back above $11.00
for June to around $11.35 and continue to show strength through September. A September peak
close to $13.00 is still possible, but prices higher will only occur if milk production slows more
than what now appears the case. Class III futures have strengthened during the past week as
cheese prices improved. But, Class III futures still only peak at $12.22 for September. Class IV
prices may move above $11.00 by June or July and could peak round $12.00 in September or
October. If these prices materialize, the average Class III price for the year could be $11.50 to
$11.75 as compared to the $14.05 average for 2005."

2006
Milk Futures on the Chicago Mercantile Exchange

05/31/06

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan
07

Feb

Mar

Apr

Class
III

$10.82

$11.35

$11.84

$12.22

$12.40

$12.45

$12.40

$12.20

$12.35

$12.15

$12.20

$12.38

Class
IV

$10.45

$10.65

$11.00

$11.00

$11.20

$11.30

$11.20

-

-

-

-

-

Butter
Futures

$1.17

$1.19

$1.23

$1.24

$1.26

$1.27

$1.28

$1.28

$1.33

$1.34

$1.34

-

Future MILC estimates may be derived from the following formula:
($13.69 - (Higher of Class III or IV price) *$0.34)
MILC-X Fact Sheet, Payment Calculations, and USDA Details are available at http://www.fsa.usda.gov/dafp/psd/MILC.htm